You're debating risk levels with co-investors in a VC deal. How do you find common ground?

I believe that risk evaluation is a critical part of a VC investor's job. Risk involves uncertainty, but it’s not negative - it may create both downside and upside potential. Experienced investors understand the risks but remain focused on the portfolio’s investment thesis. If an investment has high risk but aligns perfectly with the investment thesis of the VC portfolio, it can still be considered and approved.

To complement understanding different risk tolerances and proposing solutions, foster open and transparent communication among co-investors. This involves creating a safe space for sharing concerns and perspectives, facilitating constructive dialogue, and encouraging active listening. By facilitating open communication, you can build trust, identify areas of agreement, and work collaboratively to find solutions that address everyone's concerns and ultimately benefit the venture.

Some investors may be comfortable with early-stage uncertainty, while others prefer more established companies and I'm an early stage investor. That means no revenue, no product, no problem. But if you already have revenue I won't ask why you didn't come to me sooner. As you can imagine there's risk that comes with the territory to really swing for the fences. And co-investors don't always agree on whats a real risk vs a perceived risk. But the important thing is how resilient the solution is vs risk. So if you focus on that sensitivity analysis and scenario analysis and see how the solution can have various outcomes, then it puts the risk into outcome context. Stay Outcome-focused.

Look , in these situations it's essential to find common ground to ensure a harmonious partnership . How do you do that ? I propose the following : Encourage each co-investor to articulate their personal risk tolerance. Work together to identify the key risks associated with the investment. Assess the potential effectiveness of each mitigation strategy. Discuss the benefits of diversifying the portfolio to reduce overall risk. Explore different preference structures, such as liquidation preferences or participating preferred stock, to allocate risk and reward among co-investors. If necessary, use side letters to document specific risk-sharing arrangements.

This is particularly true when investors who’ve been in a company for a while (and may be at the end of their fund life) interface with potential new investors in a company who will support the company’s growth trajectory, but may also be delaying the time that the initial investors remain in the business. This can be challenging because the exit goals, while focused on success, are likely to deviate in desired exit timing. It’s imperative that current and new investors communicate their desired goals openly and frequently, and also that those goals and objectives be communicated with the company. In the best scenarios, secondary sales can be created for those looking to exit at an increased value and the growth investors can forge on!

There is a famous saying ' In God we trust, All other must bring data'. This is absolutely true for the VC industry . Adopting a fact based approach with the necessary experience and expertise is the best way to mitigate risk along with your co-investors. Ensure you have access to all the necessary information and data on the following aspects of the startup so that you can make an informed decision. -Founding Team -Audited Financial Details by a 3rd party firm. Customer data and preferably some Point of Contact ( POC) in those accounts, if its a B2B startup. -Thorough disclosure of unit economics, like CAC, LTV, EBITDA projections aspects. -Discuss all these aspects with your co-investors, potential red flags and come to conclusion.

Dados são sempre algo falado em nossas discussões para investimento em conjunto, mas discordo que isso seja mais importante do que avaliar as pessoas que irão participar desse investimento. No final do dia os dados não podem compreender completamente nos humanos

Strategy and collaboration is one of the best de-risking mechanisms. Bringing on subject experts, and leveraging the skills and experience of co-investors is a great de-risking strategy

No Brasil sabemos que o tempo das empresas investem em VC não é grande pois o mercado ainda é jovem mas a participação de profissionais que atuam em áreas próxima a alguns anos tem fortalecido o desenvolvimento desse mercado e facilitado a conversa com fundos para investimento em conjunto